Don't Lose Out on a House Because You Didn't Meet Your Dates!
Understanding the importance of commitment & closing dates
Dates? What Dates?
Whether you are buying a home for the first time or you are a seasoned investor, “meeting your dates” is a phrase you will hear up until you close on your house. When you decide you want to make an offer on a house, your real estate agent will draft up an offer and submit it to the sellers. At this point, you should definitely be prequalified for a mortgage as the sellers are going to want to see a prequalification letter with that offer. Before they even think about negotiating on the sales price, they are going to want to know you can afford the home according to a licensed professional (i.e. a mortgage broker, loan officer or bank).
Assuming all goes well and you are able to reach a happy medium with the sellers and their agent, your agent will now begin putting together what is called a purchase contract (sometimes abbreviated as a P&S – purchase & sales agreement). The purchase contract is going to list a variety of details which your real estate agent should be discussing with you.
On the financing side, there are a handful of items we look for in your purchase contract. This includes the infamous “dates”. More specifically, the commitment & closing dates. These are legally binding dates the mortgage side is obligated to meet – but we can’t meet those dates without your help!
What’s a commitment and why does that date matter?
In my experience, the commitment date is definitely the date I more frequently receive questions on. Depending on where in the country you are located, this can also be referred to as a contingency date (I’m sure there are other terminologies I’m unaware of). This date is hugely significant! Before or on your commitment date, you should be able to provide the selling side with a letter of commitment from your lender. This is something you work with your loan officer to obtain. It’s an important milestone because you are now able to provide sellers with written proof that the lender has reviewed your file and they are willing to give you financing based off their review.
Previous to a commitment letter, the selling side has been relying on your prequalification letter. What’s important to realize about a prequalification letter is that this letter does NOT guarantee financing. What this letter explains is that a qualified loan officer has reviewed the stated information you provided and they have scrubbed your credit report. Based on that information, you can qualify for a home at x price point.
Here is a snippet of what my prequalification letter looks like:
While reviewing a loan application and credit report can be very telling, we still aren’t seeing all the moving parts. This is often why your loan officer will start requesting additional documentation when you are requesting a prequalification letter (or they may ask for documents even sooner!).
Why do I have to provide SO MUCH for underwriting??
Trust me, I know how frustrating it can be to compile all of the documents your loan officer is requesting. There are basic documents that are requested for every transaction and then there are some we are asking you for because we are anticipating that request from underwriting. As an example, we are frequently asking for 2 month’s most recent bank statements. But if we review those statements and see large cash deposits (roughly defined as cash deposits over $500 but will depend on your specific situation. See: Fannie Mae on Depository Accounts), we are now going to have to document where that money came from. We are doing this because federal guidelines state funds must be sourced & seasoned for at least 2 months, not because we want to create more work for you!
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When I say an underwriter is going to scrub your loan, I mean it! They are going to take a fine tooth comb to any and every document we submit on your behalf. Their job is to make sure your loan officer prequalified you correctly. They want to make sure you can actually afford this home and that you aren’t at risk of heading into bankruptcy if you’re given this mortgage. The other part of an underwriter’s job is to make sure you are compliant with federal guidelines. For instance, an underwriter is scrubbing all your assets to ensure you don’t have a secret money laundering scheme that you sneaked past your loan officer.
The more open and honest you are with your loan officer, the better chance we have at getting you a mortgage in a timely manner. If you have overdrafts, just tell us! We are going to find out one way or another and it’s so much more productive to tell us up front. Then we can work with you to either document those overdrafts if they resulted from extenuating circumstances or we can help you get a budget in place so you no longer overdraw your account. The quicker you get us the documents we request, the quicker we can submit your loan to underwriter. That is the ONLY way we can get you your commitment letter.
And don’t forget, underwriters are people too! They have lots of files they are working on so they do need more than just a couple hours to review anything we submit to them. Be realistic with your expectations. Your loan officer can usually provide you with the turn times for that lender’s underwriting department. That way you have an idea of when you can get an answer on the documents that were submitted.
To summarize the process, your loan officer will give you a prequalification letter to submit with your offer on a home. Around this time they may start asking you for more documents. Then your real estate agent gets a signed purchase contract (yay!) and the clock starts. Your loan officer reviews the purchase contract and starts working towards meeting the commitment date – which means you really do have to send all those personal documents over to your loan officer. Those documents are necessary to submit your file to underwriting for what’s called an initial review. Once you send everything over, your file is submitted to underwriting and now we hurry up and wait! But for real, there are sometimes a couple days after the initial submission where we just don’t have any new news for you. Feel free to check in but don’t be surprised if your loan officer tells you “we are waiting to hear back from underwriting”. There is no reason to be alarmed!
Okay, I got my commitment letter. When can I close?
Getting a commitment letter does NOT mean you are ready to close. This is a BIG step in the right direction. But the commitment letter in and of itself does not guarantee closing. You’ll notice the letter will say something along the lines of “Loan Approval: Financing subject to clearing the following conditions”. Then you’ll see what can seem like a very long list of demands. Don’t let this scare you!!
An enormous chunk of conditions are not things you (as a borrower) need to actively work on. For instance, you’ll typically see several different conditions related to the chain of title, closing protection letter and other attorney related items. These are items handled by your attorney.
Your loan officer or their processor will be sending you a list of the items you (as the borrower) actually need to provide. And a lot of times this is pretty generic. Maybe you had a bank statement that scanned in and cut off the side of the page so the underwriter wants a new copy. I very often see underwriters requesting updated pay stubs. If there is anything of grave concern, your loan officer will be giving you a call to figure out a plan of action.
Don’t be surprised if an underwriter re-conditions after you send your requested documents over. There could be a detail they have a question on or they need more documentation. Or maybe they forgot to ask for something with your initial approval – underwriters are real people! This doesn’t mean your loan is falling apart or that you won’t get the house. It just means the underwriter needs some more documents. Be as responsive as possible when your loan officer is sending you requests! This will get you answers faster so you can stress less. We are all working towards getting you to the closing table!
Your closing date is a bit more straightforward – this is when you actually close on the house. All inspection items have been worked out on the real estate side. Your appraisal came in at value or above (or your loan was re-structured to accommodate a lower value). You have satisfied all of the conditions underwriting requested on your commitment letter. Now you get to sign more documents!
I say this half joking, but seriously, get ready to sign a LOT more documents. You might have some re-disclosures sent over before closing. You’ll definitely have a closing disclosure package sent over for acknowledgment and/or signing. Then there are your final closing documents which are signed on the official closing date. You will usually meet at your chosen attorney’s office unless another location is agreed upon. Most often you’ll be accompanied by your real estate agent. The seller’s and their agent will more than likely be at the closing table as well.
Your real estate agent will take you to do a walk-through of your home to make sure nothing crazy has happened before you close. You know, like all the copper piping has been stolen or the house burned down. Just dotting all the i’s and crossing all the t’s!
When the closing is officially done and all the final documents have been signed and checks have been cut, you’ll receive the keys to your new home!!
It’ll probably have felt like eternity to get to the closing table but now you have a place of your own to call home. Working with professionals (such as a real estate agent and a loan officer) really will help to alleviate some of the stress and confusion! We are here to support you and to help navigate you through the chaos.
Know someone who is in the process of buying a home? Share this article with them! If this helped you in any way, let us know! And if you have any questions at all, please reach us to us - we would love to answer your questions!
In case you were curious how my puppy did in the calendar photo shoot…
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